Impact of Working Capital Management on Companies’ Financial Performance : A Case Study of Pharmaceutical Companies in Pakistan

This study investigated the impact of working capital management on the financial performance of major pharmaceutical companies listed on the Pakistan stock exchange. Seven companies were selected from the pharmaceutical industry listed on Pakistan Stock Exchange (PSX). Data was collected from the annual reports of the companies and the period of study is from 2008 – 2018. Several hypotheses were tested. The results concluded that NWC has a positive and statistically significant relation with ROA. This could be because the higher NWC the easier for the company to run its daily operations smoothly resulting in better performance and profits resulting in more ROA. NTS shows negative and statistically significant relation with ROA. NTS ratio uses both NWC and sales. Higher sales result in low values of the NTS ratio but higher sales result in high profits which give high ROA. CCC has a negative coefficient means it is inversely related to ROA but it is statistically insignificant. Another regression model concludes that CCC has a negative and significant relation with TQ but NWC and NTS are found to have insignificant relations with TQ. Working capital optimization suggests that the firm could increase its profits substantially while managing working capital efficiently. This research also provides a road map to help finance managers in developing models and policies to achieve the ultimate objective of wealth maximization